Italian Scandal Widens As Italy's Third Largest Bank Set To Get Third Bailout In 3 Years; Draghi, Monti Implicated

While little has been said in the mainstream western press about the ongoing fiasco surrounding Siena's Banca Monte dei Pasci, Italy's third largest bank and the world's oldest which may get its third bailout in three years- or even be nationalized - as soon as today, for fears that it may break the thin veneer of "recovery" in the European financial system, the situation on the ground in Italy is getting more serious by the minute, and will have implications on both next month's general election, on Mario Monti, on Silvio Berlusconi, on frontrunner for the Prime Minister post Pier Luigi Bersani, and reach as far up as the head of the ECB - Mario Draghi.

Several hours ago, on Saturday morning, the four-member board of the Bank of Italy - this time without its prior president Mario Draghi - met to consider the position of scandal-hit bank Monte dei Paschi di Siena and decide whether to authorize its request for 3.9 billion euros ($5.3 billion) of state loans.

As we reported previously, it has emerged over the past week that due to previously undisclosed derivative contracts first exposed by Bloomberg, the Siena bank has hid as much as $1 billion in losses. However as was explained in "Will The Super Goldman Mario Brothers Succeed In Covering Up The Latest Italian Bailout Scandal", this discovery has far greater implications for both the bank's future viability, as well as the implied credibility of both the Bank of Italy, and especially the man who headed it for five years before becoming head of the ECB (where he now demands the same supervisory authority over all European banks that he had in Italy, only to supposedly let countless derivative fiascos slip through his fingers).

As Zero Hedge first connected the dots, it is not so much a question of why BMPS engaged in a variety of derivative deals, of which only three have emerged so far and likely has many more on the books, but how or rather why, the then-Draghi led Bank of Italy allowed this to happen not once, not twice, but at least three times.

What the ultimate purpose of these deals was is still unclear and will likely become apparent eventually, however it will likely require the former Chairman of the bank, Giuseppe Mussari, who served as Chair from 2006 until April 2012, and who officially quit his post as Italy's top banking lobbyist after today's revelations, to testify. One person whom he may testify against is none other than current ECB head Mario Draghi, who just happened to be the head of the Bank of Italy from 2006 to 2011, or the entire period when Monte Paschi was engaging in what increasingly appears to have been fraudulent activity.

European Central Bank President Mario Draghi is facing criticism over a scandal involving loss-making derivatives trades made by troubled Italian lender Monte dei Paschi di Siena while he was Italy's central bank governor.

Former Economy Minister Giulio Tremonti said in a tweet that it was "stupefying" that in his role as supervisor of Italy's banking system Draghi had failed to discover or prevent the trades, which took place between 2006 and 2009.

An ECB spokeswoman declined to comment on the matter, saying that it was "the responsibility of national authorities."

Current Economy Minister Vittorio Grilli avoided mentioning Draghi directly but stressed that it was not the government but the central bank that was responsible for bank supervision.

"It wasn't us that did the controlling," he told reporters. "On the checks, all I will say is that it is the responsibility of the Bank of Italy."

Draghi saw no evil, smelled no evil, and certainly heard no evil:

On Wednesday the central bank tried to deflect any criticism, saying the nature of the trades had been "kept hidden" and were only recently divulged by new management appointed last year to turn the bank around.

Draghi, who has won wide plaudits as ECB president, left the Bank of Italy in late 2011 after a five-year stint as governor.

During this time he was also president of the Financial Stability Board, an international body charged with improving financial supervision and regulation.

The deals under scrutiny are the so-called "Alexandria" trade with Japanese bank Nomura, the "Santorini" trade with Deutsche Bank and a derivative called "Nota Italia", with an unspecified bank.

...

One of the roots of its problems - the 2007 acquisition of smaller rival Antonveneta for a whopping 9 billion euros in cash just months before the beginning of the financial crisis - was also done under Draghi's watch.

...

"One has to wonder what the Bank of Italy was doing given all the visits they've paid to Monte dei Paschi in recent months," said a source close to the situation.

"If what they came here to look at was only the information publicly available in the bank's financial statements, they could have done that from Rome."

If only Mario Draghi could threaten to print countless lira, as he has effectively done as head of the ECB, to contain, for now, the European banking implosion, all would be well, however he can't, and for now at least the problem is contained to Italy.

Of course, the Bank of Italy could punt, and effectively push the problem to the ECB's plate, but the second that happens the fragile alliance between surreality and outright idiocy that has gripped European pundits and "analysts", who claim Europe is fixed, when in reality nobody knows what the banks have on their balance sheets, or how many more trillions in liquidity they collectively need before their capitalization is fixed (that is a trick statement, of course, because excess liquidity will never, ever help with capitalization issues, as much as the ECB pretends otherwise) will crash and burn.

The problem for the ECB in coming to an indirect cash bailout of BMPS would be its own historical record from as recently as a month ago, when the second bailout of Monte Paschi was being finalized. From Reuters:

The terms of a state bailout scheme for Banca Monte dei Paschi di Siena, Italy's third biggest lender, could pose more challenges to the bank's performance, the European Central Bank said. The ECB, which will supervise euro zone's lenders from March 2014, also said on Thursday it was told by the Italian government too late into the process about the details of the rescue.

Monte dei Paschi was forced to request state aid after failing to meet tougher capital requirements set by the European Banking Authority.

the ECB said issuing more bonds to pay for the coupon would add to the bank's debt burden in an already difficult economic environment.

"This could pose further challenges to the bank's performance in the near term and impair its capacity to redeem (the bonds) in a timely manner," the ECB said in an opinion posted on its website. It said it would be preferable for the bank to issue new shares to the treasury to help pay interest - an option that is possible under the scheme but is not favored by the treasury or by the bank.

So the Italian head of the ECB was told by the Italian government headed by Monti, both former workers of Goldman Sachs about the terms of the second Monte Paschi bailout, "too late"? And upon hearing of said bailout, it was the ECB's determination that a more feasible bailout structure would be to issue equity - equity from an entity that one short month later would need another bailout and possibly nationalization (hint: equity value = zero)?

One couldn't make this up!

But if it was only a question of implicating Draghi, we are confident that the BMPS scandal would promptly go away after the Frankfurt-based central bank slipped a few billion €s under the table to the current head of the BOI - Ignazio Visco - delaying the eruption of the problem for another year. However, what is unique this time is that the BMPS fallout has far broader political implications due to BMPS' historical links to the centre-left, and the fact that Bersani's Democratic Party runs the local government in Siena where Monte Paschi is based, and controls the banking foundation that is the lender's biggest shareholder.

As a reminder Bersani is the frontrunner to replace Mario Monti as Italian PM. Which means the immediate involvement of the entire media empire apparatus of who else but...

Yup - Silvio, who is also running in next month's election, is now on the case, and where Silvio goes, the public is sure to follow.

Berlusconi and his allies have slammed Monti over the bailout by linking the aid to an unpopular real estate levy on first homes, known as the IMU, which raised from Italian taxpayers an amount similar to the emergency loans designated for Monte Paschi.

“We paid the IMU to Monti so that he could save the bank” of the Democratic Party, read yesterday’s front-page headline in newspaper Il Giornale, owned by Berlusconi’s brother Paolo. “What has been said about interventions and comparisons between the amount used for aid and the revenue from taxes is a complete fantasy,” Monti said.

Monti said today in an Italian radio interview that the election campaign shouldn’t affect the bailout timing because it’s being carried out under European rules. Still, he acknowledged that the Monte Paschi case “has a lot to do with the ugly beast of mixing banks and politics.”

The irony of course, is that the first bailout that Monte Paschi received was when Berlusconi was still PM:

Monte Paschi, the world’s oldest bank, received a first bailout from Berlusconi’s government in 2009, and has now added 500 million euros to its aid request to cover potential losses linked to the structured-finance deals, bringing the total cost of the rescue to 3.9 billion euros

However, to distract from his involvement, Silvio will be more than happy to throw none other than Draghi under the bus for having been the BOI's head at the time, and after all - it was Draghi's decision to bail out BMPS, not the Prime Minister's.

Ah, the plot thickens:

“We want to know the truth, we’re tired of being taken advantage of,” said shareholder Gianni Acciughi, 60, who took early retirement from Monte Paschi in 2009. “How is possible that nobody knew anything about this? If that’s the case, then legal action has to be taken immediately against those responsible.”

Members of the Northern League party, a partner in Berlusconi’s previous government, demonstrated at today’s investor meeting. They distributed leaflets criticizing Mussari’s management and his ties to the Democratic Party.

And for those who still believe this is a non-issue, Beppe Grillo, the leader of the 5 Star Movement running in the campaign, and a very popular grass roots candidate among voters disenchanted by both parties, "said the bank’s case will turn into a scandal worse than the collapse of food company Parmalat SpA in 2003."

Needless to say the scramble by everyone to cover their backsides ahead of what is sure to be an epic media, publicity and political scandal has started:

[Bank of Italy head] Visco attended the World Economic Forum in Davos on Friday where he gave a spate of interviews to try to deflect accusations that the BOI had not done its job properly.

"It is wrong to insinuate that there was a lack of supervision by the Bank of Italy," he told CNBC television, adding that his institution had nothing to hide and would cooperate with prosecutors probing the Tuscan lender.

Visco told reporters on Friday that "there is no question that the bank is stable."

Actually, there is:

Outgoing Prime Minister Mario Monti said late on Friday he considered it a "remote hypothesis" that the bank would end up needing to be nationalized.

So... there is "a question"?

It only gets better:

In Davos, Visco sidestepped questions about whether Draghi knew about the derivatives trades, which were conducted between 2006 and 2009 and involved Japanese bank Nomura and Deutsche Bank.

However, the outcome of the audit was "partially favorable" for the Siena-based bank, contrasting with "partially unfavorable" rating given by Bank of Italy inspectors led by Vincenzo Cantarella at the end of an inspection from May-August 2010.

Press reports on Saturday suggest the scandal around Monte Paschi is widening.

Yes it is. And it is "widening" at a time when former Bundesbank head Weber said in Davos that everyone in Europe has succeeded in sticking their heads in the sand:

“Central banks can buy time, but they cannot fix issues long-term,” former Bundesbank President Axel Weber, now chairman of UBS AG, said in the Swiss ski resort yesterday. “There’s a perception that they are the only game in town.”

This coming from the former head of the one European central bank which several days ago requested that all of its Paris gold, and much of its New York-based gold, be repatriated.

And when the next leg of the financial crisis flares up, which it will as nothing at all has been fixed, unless one considers stuffing all outstanding issues under the rug "fixing", nobody will have been able to foresee any of it. As always.

I sent a note to FullMonti and Bungabunga suggesting an explanation to at least the Banca Monte dei Pasci problem. That they were only chartered in 1479 (or thereabouts) and haven't had time to stabilize the account base.

Haven't heard anything back.Ya' know, I get ever so tired of coming up with elegant explanations to the world's problems for which I never get any credit.

Look, Silvio has already anticipated you. He indeed said at the beginning of the electoral campaign someting to the extent that Italy should leave the euro. Only, international MSM have failed to expand on that.

nationalisation will be the burning issue in Italy and Spain and maybe France and UK; if it hits Germany its game over for Euro.

This will have to be resolved in 2013/2014 as the system has to be flushed out if the individual banks are unsustainable. Draghi cannot save the less compromised banks if he also does the more so ones. Its now bad apples leave the system or the system collapses faster than fast.

It has already hit the US in 2008 where Citi and BofA were nationalised; de facto. But FED is reserve king...we will see if the famous Euro banking consolidation forseen for 2014 onwards is already efficient.

Same shit, different day
ECB wins case to conceal Greek debt secrets
Secret documents revealing the extent of the European Central Bank’s knowledge of Greece’s concealed debt issues prior to its €240bn (£195bn) tax-payer funded rescue have been withheld in a "disturbing" EU court ruling.

And there's more trouble in Ireland--ECB doesn't want to take its funny paper fearing everyone will start giving them monopoly bucks to be paid back in 30 yrs. It's like a pond full of ugly ducklings in development for black swan status--foreseeable, certainly, there's just too damn many of them.

I agree. The one thing I disagree is Sweden, Denmark and Switzerland joing the new strong euro. They should stay out. The euro needs to go but they really need to dump the EUSSR with criminals like Baraoso, Van Rompouy and the rest of that lot.

Yep. "hid losses so massive the bank would have failed if they had become known." what falak says above as well is spot on. NationalISM is as much a problem as nationalization. "complexity is everywhere and always hobgoblin of sound finance." these folks WANT a pristine balance sheet...but what it takes to create that fiction (in the USA it was securitization) literally defines the bank. Interestingly one of the counter parties is undefined. If you're going to nationalize you might want to know who that is/was. Anywho "the Song Remains the Same." this is all about restoring confidence in the economy as a whole...and simply put Europe is still not there.

On a similar note, in the Netherlands one of the bigger banks/insurers SNS Reaal is in deep trouble as well. Mainly because of their real-estate portfolio in big projects like golf resorts in Spain (http://www.reuters.com/article/2013/01/10/snsreaal-spain-idUSL5E9CAFSA20...). There is now a big discussion whether tax-payers should foot the several billion dollar bailout or it has to fall on bondholders (shareholders will have to pay already).

Banks ABN AMRO and ING were not allowed to step in by Brussels. Rabobank said in that case SNS is too big for us alone. A bad bank will be established, maybe other partys can take over the whole bank, the 'good' and the bad parts. I believe taxpayers will take another hit.

MPS suspected bribes to 2 billionpurchase of bank AntonvenetaThe Finance investigates the influx of funds from London, where he would end up part of the 9 billion paid to Santander.And they would be returning to Italy.Shadow that probably will expand liability beyond the face of Mussari and Vigna.The Prosecution of Siena await the outcome of the vote: the doubt that behind foreign operations there were gifts to partiesby our correspondents Carlo Bonini and ANDREA GREEK

SIENA -The secret of the system Mussari, incipit of the catastrophe of MPS, is an account of a bank in London in 2007 of which were parked € 2 billion.

Those 2 billion euro are incongruous and never justified premium to purchase Antonveneta with which to feed the appetites of politics, the ruthlessness of the management of the Mount and make indissoluble "harmonious tangle" of the third Italian bank, the oldest in the world.On that account would be parked in the mother of all bribes, then letting the time and a sequence of tax shields would allow the peaceful return to Italy to its direct beneficiaries or intermediaries.Politicians, in fact.Bankers.Manager.

If this is so, if he gets it right this is now the main investigative assumptions on which they move the prosecutor of the Prosecutor of Siena and Antonino Nastasi Joseph Grosso and the Core police currency of Rome (which just made a number of London requests), the last five-year history of MPS will be rewritten from top to bottom and possibly the list of responsibilities do not stop at just Mussari and his men.In an announced "Armageddon" judicial, not surprisingly, has advised the prosecutor to await the outcome of the vote in February before his "discovery".And when the "new" MPS announced that it will be the injured party, demanding liability claims for billions of euro.

Londonand the purchase of Antonveneta, then.From here you need to go.We are at the end of 2007 and the financial world is coming to dance on the edge of the abyss.The MPS of Mussari buy Antonveneta from Banco Santander to 9 billion in cash.Define a price that is less generous.Out of all logic and parameter and, moreover, inexplicably son of a revival of the same Mussari when the Spaniards seem ready to close to 7 billion.The 9 billion is paid in two installments and separate accounts.7 billion directly to Santander.2 billion on behalf of a bank in London in the availability of the same Santander.

It is equipped with the tangent.Or, at least, this is the only logical explanation that can be given to the anomalies in the purchase: the premium and its payment of a separate account.Bank of Italy may rely on that operation, probably.But decides not to enter into the purchase price of asking the only condition to Mount to recapitalize.The Bank does, but in his own way.With the issuance of a convertible loan into shares of one billion (the so-called bond "fresh"), a debt contract with Mediobanca and Credit Suisse and payable to underwriters have always remained mysterious, some of which are traded abroad.It is a choice "quiet" the Bank of Italy at that time we all need.Why Antonveneta is a "system operation", where all cover everything, and for the benefit of all.And when you create new and cement loyalty.In Siena, but not only, as the jubilation, in 2010, the throne of Mussari ABI.Antonveneta, in fact, at that time a problem of the system, and as such is arranged with general satisfaction.

Policy, the block of interest that controls the Bank.Too bad, that once swallowed the mouthful Antonveneta, begin the agony of Mt.At the bedside, which is applied parallel management structure, which belongs to the finance Gianluca Baldassarre (a relative of Mario Baldassarri, An economist then undersecretary of the Berlusconi government), his deputy Alberto Cantarini, and at least a dozen operators, leaders in the past decade of a theory of risky operations, derivative squared and machinations that now, at Palazzo Koch, do not hesitate to describe as "monstrous."These investments concluded in secret, and with little regard to the deadlines and good practice, using a lever thirty billion euro of which the bank earns very little (one zero point, if all goes well) while others earn much.

To MPS and Baldassari is a turbofinanza must redo the trick to balance and move forward losses, if necessary, processed almonds miraculously useful (in the case of transactions Santorini and Alexandria).And that no one notices what is happening at that moment in Rocca Salimbeni is hard to believe.For one thing, "the agreement with Deutsche Bank London (the contract Santorini), which resulted in the end of 2008 the purchase of 2 billion BTP, related to financing the cost of which depended markedly random variables," increases one year after when it is included in the statistics, 30% in one fell swoop "the risk of the banking book."While MPS internal inspection in May 2009, as Bankitalia ensure a year later, "ended with positive opinion, not adequately considering the breach of the limit of structural liquidity, the risks of investing in desk and the effects of variable swap payable at a fixed rate in the context already in decline. "

At that time MPS is a dying animal ready for any type of operation in order to survive must be the secret to the System.So much so that even Bank of Italy, as evidenced by the inspection report of May 2010, is showing signs of concern.Until the final act, New Year's Eve 2011, when the suasion of Via Nazionale is necessary, with the appointment of an external manager - Fabrizio Viola - head of the bank.A de facto commissioner, after less than a month away badly finance director Gianluca Baldassarre, paved the entire finance department and sent home, as he himself claimed yesterday at the meeting, "50% of the high management."Meanwhile, on that account the tangent London began to return to Italy.Fractions.In a sequence that is made by sporadic at some point in continuous flows and for this curious the Finance.The beginning of an investigation, and just the revelationof a system.

it seems that you and tyler have some deep inside knowledge, tanto di capello. as I wrote already in my former comment, it's unfortunately a nobrainer. you will never be able to attack draghi, his fully covered by angela from the political side and from the us (jews) side by 200 west, nyc. therefore, all your arguments are not" zielführend". where is the real story? elections. as you wrote, MPS has a big quote of voting rights in the hands of the fondazione, which is ocontrolled by the left. who want's to win? you know the answer. what would you do, being the CEO of intesa or unicredit, knowing that MPS is gettung gov. funds? are you happy with it, fullfilling all your duties? and those bastards, lazaroni e fanulloni di turno get it free? mussari is the big winner. i would come up for a nice dinner with all the ZH bloggers in a decent italian resaurant, i know plenty of them, knowing about the details, why NOTHING will happen to him at all. omertà, come dicano i nostri fratelli del sud.

“We want to know the truth, we’re tired of being taken advantage of,” said shareholder Gianni Acciughi, 60, who took early retirement from Monte Paschi in 2009. “How is possible that nobody knew anything about this? If that’s the case, then legal action has to be taken immediately against those responsible.”

Gianni Acciughi - Poor clueless fuckovered while sleepwalking through life gerbervore. Keep up this nonsense Gianni and some European court will issue a warrant for your arrest for making a terrorist demand whose only goal can be undermining EU solidarity. If not then keep a sharp lookout for an Obamadrone. You just might be targeted for termination as a threat to global financial stability .. er .. world peace

Monti is really a nice guy, he's being wrongly trashed. Just this evening he and his friend DSK are taking my nice young wife out for a fancy dinner........On second thougt, maybe I better talk to my wife now.

It seems that whas precisely Monti dei Paschi di Siena the bank who invented the derivatives under the form of tulips' insurance, 375 years ago. In 1623 a certain kind of tulip was very precious and everybody wanted it. At the time a Messer Cucinotti from Monte dei Paschi di Siena invented the "wind's commerce", meaning: he made the bank print insurance certificates for the tulips' bulbs and started to grant those certificates with a subsidiary in London that traded them charging a profit and so on. Thing is that each certificate reached the ammount of 186 bonholders which they bought at different prices (from 8 to 75 fives the original ammount). The BMPS gave "investors" loans to purchase certificates, of course, granted by real states they owned. In 1635 the ammount of speculative finance reached 15 times the real wealth of the whole European royalty. In 1637 some aristocrats who needed cash started to sell and on february 9 had place the first gigantic financial catastrophe in History.

Foremost, I hope nobodys going to set themselves on fire over this - it only provides entertainment for the bankers and you tube hits.

Separately, what will it take to get the public to take notice and question this - I don't think strong words from the big breasted bimbos on financial networks is going to get the job done. The Japanese never wokeup to what was and is being done to them - which is only fitting as they treat thier women and children so they were treated.

Are our elected really that in the pocket of the bankers that they cannot be bothered to take a serious look at what is going on.

Obama is clearly ownly a Chicago political hack.

Somehow I feel something or someone needs to tip the playing field just a little bit. The thing is they don't really accept that what they are doing is wrong - similar to the mistreatment of women in India. It would only take a few harsh sentences to get thier attention I think threat of capital punishment is not out of order. More likely they will get tough on the poor first.

There's lots of illegal money that'll always keep Italy afloat.Well at least they thought so.Then came along these little items called "derivatives" and we all know what old Warren Buffet has to say about them.Not even the billions made from supplying dope will save Italy and the United States Governments from overwhelming debt.